TSLA: Shareholder Pay Vote And Leadership Uncertainty Will Undermine Near-Term Performance

Key Takeaways

• Expansion into autonomous services and FSD subscriptions is shifting Tesla toward a high-margin, recurring software revenue model with stronger earnings potential.
  
• Growth in energy storage, gigafactory capacity, and AI-driven cost reductions positions Tesla for improved margins and significant long-term market expansion.
  
• Trade policy changes, reduced incentives, regulatory delays, slow product ramp, and high spending are creating margin pressure and growth headwinds for Tesla's core businesses.

Catalysts

Designs, develops, manufactures, leases, and sells electric vehicles, and energy generation and storage systems in the United States, China, and internationally.

• The rapid rollout and scaling of Tesla's robotaxi and autonomous ride-hailing services-already operational in Austin with plans to expand to half the U.S. population by year-end, contingent on regulatory approvals-positions Tesla to generate significant new high-margin, recurring software revenues, which is expected to meaningfully lift overall earnings and net margins.
  
• Increasing adoption of Tesla's Full Self-Driving (FSD) subscriptions, driven by improved software (e.g., version 12 and 13), lower pricing, and strong safety data (10x safer than non-FSD vehicles), supports the thesis that Tesla's transition toward a software-driven business model will elevate gross and net margins through high-margin recurring revenue streams.
  
• Tesla's Energy Generation and Storage business set new gross profit records in Q2 and is positioned for further growth as AI-driven, data center, and grid decarbonization trends accelerate battery and storage demand, contributing positively to revenue growth and gross margins.
  
• Tesla's aggressive Gigafactory and product development (including more affordable models and next-gen robot/humanoid products like Optimus) are expanding its addressable market and global production capacity, creating a foundation for compound annual revenue growth and increased operating leverage over the long term.
  
• Advancements in real-world AI, inference chip design (AI5/Dojo 2), and vertical integration continue to improve Tesla's technology differentiation and operating efficiency, allowing for cost reductions in vehicles and energy products, which is expected to drive margin expansion and boost future earnings.

Tesla Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tesla's revenue will grow by 16.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.3% today to 10.4% in 3 years time.
• Analysts expect earnings to reach $15.4 billion (and earnings per share of $4.22) by about September 2028, up from $5.9 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $4.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 89.5x on those 2028 earnings, down from 183.3x today. This future PE is greater than the current PE for the US Auto industry at 18.1x.
• Analysts expect the number of shares outstanding to grow by 0.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.11%, as per the Simply Wall St company report.

Tesla Future Earnings Per Share Growth

Risks

• Increasing global tariffs and unpredictable trade policy, particularly the rise in costs from tariffs and the impact of the recent U.S. One Big Bill, are driving up Tesla's manufacturing and component costs (with $300 million in increased tariffs already acknowledged), which could pressure gross margins and reduce overall net earnings.
  
• The elimination or reduction of consumer EV purchase incentives in the U.S. (specifically the $7,500 IRA EV credit ending soon) and early expiration of residential storage tax credits are expected to drive down U.S. demand and revenue, especially in the near term, and may hinder broader adoption of Tesla's products.
  
• Regulatory obstacles and slow approvals for expanding robotaxi and FSD services outside the U.S.-notably in the EU and China, Tesla's largest international markets-could significantly delay the monetization of autonomy, constraining high-margin recurring revenue growth, and slowing volume growth in critical regions.
  
• The automotive product ramp, including new lower-cost models and Optimus humanoid robots, is proceeding slower than initially expected due to execution complexity, supply chain risk, and the S-curve challenges of scaling new technologies, potentially leading to delayed or reduced new revenue streams and early periods of negative gross margins.
  
• Elevated R&D and capital expenditures (e.g., $9+ billion expected annual CapEx, rising AI investment, and increased operating expenses) alongside ongoing volatility in Bitcoin holdings could dampen free cash flow, placing further strain on Tesla's profitability and financial flexibility as it executes several ambitious parallel growth initiatives.

Valuation

• The analysts have a consensus price target of $306.321 for Tesla based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $500.0, and the most bearish reporting a price target of just $115.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $148.1 billion, earnings will come to $15.4 billion, and it would be trading on a PE ratio of 89.5x, assuming you use a discount rate of 11.1%.
• Given the current share price of $334.09, the analyst price target of $306.32 is 9.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.